MacOS – Will upgrading the Mac result in the loss of the data

It won't matter as far as the software goes since Lion runs the migration script one time only on your Snow Leopard data whether you migrate it in from a backup or it's there when you do the upgrade to Lion.

From a human standpoint, I would encourage you to make a "test" account (pick a different short name to prevent conflict or confusion when migrating your "real" account later)

Updating and testing Lion lets you build confidence the Lion is working on your repaired hardware.

• Run Snow Leopard updates to 10.6.6 at least to get the App Store if needed
• Install Lion
• Run all updates
• Test Lion in the test user. Once you're happy it works, migrate in your user data.

There's no right or wrong here - so do whatever makes the most sense to you. You've had a rough spell with the first upgrade / hardware failure - no need to over complicate things unless you really feel more steps is better.

The answer can be found on the Apple message boards and I can confirm this worked for me:

1. As root using sudo command from Terminal, delete the /Library/Server folder using the following command: sudo rm -rf /Library/Server
2. Within Finder, delete "Server" application from the "Applications" folder.

I realize you did remove the server.app folder, but the Library/Server folder must also be removed and was hidden from the finder. I only found it through terminal.

The person on the apple forum must have been from the team and knew what the installer was looking for.